An intriguing question emerged from last week’s merger announcement from Walgreens Boots Alliance and Rite Aid. Led by CEO Stefano Pessina and his largely European executive team, will Walgreens be purveyor focused on retail sales or provider engaged with a transforming U.S. health care system?

The signals are mixed. A tea-leaf reading of last week’s investor call suggests Walgreens is destined to be a purveyor, focused on selling products and services. Today, however, Walgreens announced a big technology move that points to a provider future, closely integrated with payers and providers.

Purveyor or provider? Read on.

Tobacco: To Sell or not to Sell

“Are you considering eliminating tobacco,” Barclays Capital analyst Meredith Adler asked Walgreens president Alex Gourley during the investor call as the company fielded questions about earnings and the merger.

Gourley had just praised RiteAid for its new, sales-increasing wellness format, saying it was an opportunity for Walgreens, which also is seeing success with its new health, wellness and beauty positioning.

“It seems pretty clear,” said Adler, explaining her question, “that providers and payers feel uncomfortable working with a retail pharmacy that still sells tobacco.” In the background was the 2014 tobacco sales halt of CVS Health, which boasts 49 clinical affiliations, including Cleveland Clinic.

Gourley’s answer: No.

Walgreens would instead continue investing in smoking cessation. Anyway, he noted, only about three percent of all tobacco sales occur in a drugstore. He did not pivot to emphasize how Walgreens is working with providers and payers, notwithstanding tobacco sales.

A tea-leaf saying “purveyor”? Perhaps.

Outposts in Seattle

Gourley could easily have drawn the analyst’s attention to a Walgreens announcement just two months previously. In August, Walgreens and Seattle-based Providence Health & Services launched a new “strategic clinical collaboration.”

Providence will own and operate clinics in 25 Washington and Oregon Walgreens stores under its Providence and Swedish brand names. The first three will open in early 2016, with the remainder following in two years.

Rite Aid made a similar move in the Seattle market in May when it announced a joint venture between its RediClinic subsidiary and MultiCare Health System. The joint venture will operate clinics in 11 stores staffed by board certified MultiCare Nurse Practitioners in collaboration with MultiCare affiliated physicians.

Seattle, home to only three CVS stores, will provide a sheltered environment for Walgreens and Rite Aid to test the strategy of developing “deeper and more strategic relationships” with health systems. In particular, Providence is quite a catch, having directly contracted with Boeing to provide health care for the aircraft maker’s employees.

The EpicCare Connection

However, the nation’s 1,000 CVS MinuteClinics dwarf both Walgreens 400 Healthcare Clinics and Rite Aid’s small number of in-store RediClinics. Surpassing 25 million patient visits since the opening of its first clinic, CVS says it is opening three new MinuteClinics a week. Aiming for 1,500 clinics by 2017, CVS is acquiring all of Target’s 1,660 pharmacies and 80 clinics.

CVS is converting all of its MinuteClinics to the market leading EpicCare electronic medical records (EMR) system. Used broadly across health care, Epic also has strong interoperability with other EMR systems. This will provide seamless data exchange with most American hospitals.

“EpicCare will help us work more closely with physician practices as part of the medical home team, facilitate co-management of patients, and advance our mission to make health care more accessible, convenient and affordable for Americans,” said MinuteClinic chief medical officer Nancy Gagliano, M.D.

Dr. Patrick Carroll agrees. Today, the chief medical officer for Walgreens Healthcare Clinics announced the clinics would begin moving to EpicCare early next year. “As our clinics play an increasingly important role in health care, supporting the health care system, provider practices and patients’ medical homes, care coordination can be critical,” he echoed.

So, a provider future for Walgreens? It certainly looks like it. “This will benefit our patients, clinic providers and partners, and serves as an instrumental part of our strategic growth plan [emphasis added],” explained Carroll.

Confusing Signals

However, as recently as May, Walgreens quietly shuttered 35 clinics, a move two former employees described to Crains Chicago Business as signaling “uncertainty whether Walgreens really wants to spend more on primary care and in particular upgrading the clinics’ electronic medical record systems.” Today’s announcement erases some of that uncertainty, at least with respect to the EMR system.

In Seattle, Walgreens will provide in-store space, overseeing any needed build out. Providence will be using its own Epic system. “Patients will experience a seamless patient experience through our existing electronic health record system, providing direct connectivity to the clinics and billing systems, which will ensure better continuity of patient care and collaboration among providers,” said Providence senior vice president of physician services Mike Waters. Now, Walgreens will be able to connect directly.

Convincing Collaborations

In Seattle, a provider land lord; in Tampa, still a provider. There, Walgreens partners with a multi-specialty practice, assuming risk in an accountable care organization (ACO), Diagnostic Clinic Walgreens Well Network. Serving 7,500 patients, the ACO saved $1.5 million or 2% in costs. However, Walgreens has exited ACO partnerships with Baylor Scott & White in the Dallas-Fort Worth area and New Jersey’s Advocare. The company continues a clinical affiliation with Baylor Scott & White.

In Baltimore, Walgreens has a long-standing relationship with Johns Hopkins Medicine (JHM). The company provides grants for population health research overseen by a joint committee. Two years ago, it opened a store, including a Healthcare Clinic, adjacent to the JHM campus. In this case, Walgreens’ board certified nurse practitioners staff the clinic, although they and company pharmacists can work with JHM faculty.

Rite Aid’s Health Alliance program should dovetail nicely with Walgreens provider collaboration initiatives. The program brings together physicians, pharmacists and special care coaches to provide care and support to individuals with chronic and poly-chronic health conditions, helping them achieve health improvement goals established by their physicians.

Eight provider organizations currently are participating in Health Alliance, which leverages Rite Aid’s population health subsidiary, HealthDialog. Another 11 reportedly are be interested. On average, patients participating in the Rite Aid Health Alliance are 36% more adherent to their medications; they have lost an average of 7.7 pounds; they have a 39% reduction in blood pressure; and they have lowered their blood sugar by 36%, reports Drug Store News.

Big Bet on Consumer Technology

Rite Aid is also bringing Cleveland Clinic physicians into some of its Ohio stores via telehealth start up HealthSpot. Installed in the stores is a kiosk, enclosed for privacy, which includes a video connection with a physician and the capability to take and transmit vital signs to the physician.

Opting for mobile, Walgreens is using the Pager platform, designed by an early Uber architect, to connect customers with physicians. It also is relying on the MDLive platform for telemedicine, and working with WebMD on a wellness app, and with PatientsLikeMe enabling people to share medication experiences with each other.

Walgreens has been a leader in using technology to engage its customers. Its app is the third most downloaded retail app in the U.S. and the number one brick and mortar pharmacy app, reports mobihealthnews. Fourteen million people visit a Walgreens app or website each week and Walgreens fills more than one mobile prescription every second.

Walgreens’ Epic Catch-Up

However, until the EpicCare announcement today, Walgreens lagged in using technology to engage providers. Its electronic record system could not easily communicate with other systems, forcing stores to use secure fax and email to communicate with physicians and other providers. That raised serious questions about the future of its provider collaborations and role as a provider.

Now, EpicCare means Walgreens can be more than a purveyor. It can also be a provider, fully integrated into the new health care.

In 1872 St. Louis, all that would later become SSM Health could fit in the basketMother Mary Odilia Berger, SSM., carried from house to house – bread for the poor, medical supplies for the sick and clean linens for her patients. As she walked “with a very purposeful step,” people she met on the street would slip a donation in her basket.

Nearly 145 years later, woven in today’s SSM Health “basket” are 30,000 people – including 1,300 employed physicians – working in four states at 19 hospitals and more than 60 outpatient clinics. In addition, the system operates an insurance company, two nursing homes, comprehensive home care and hospice services, a telehealth company and two Accountable Care Organizations (ACO).

Among the hospitals is the system’s first academic medical center, Saint Louis University Hospital, which it acquired earlier this year from Tenet, and a children’s hospital. Most of the outpatient clinics and many of the physician employees arrived with the 2013 acquisition of Wisconsin’s Dean Health System. Dean also brought a health system rarity, ownership of a growing pharmacy benefit manager along with a string of retail pharmacies and eye care centers.

Process, Purpose, Patient

The base of today’s SSM Health “basket,” with its focus on process, purpose (mission) and patient, took shape in the hands of another purposeful leader, Sister Mary Jean Ryan, FSM. It took a dozen years, beginning four years into her leadership of a newly centralized system:

Process (1990): She and the system’s leaders committed to continuous quality improvement. They aimed to “create a culture in which every employee at every facility and at every level of the organization would constantly seek to improve processes – every single day.”

Purpose (Mission) (1998): Three thousand system employees, at all levels, in all locations, condensed a wide variety of mission statements into one succinct declaration: “Through our exceptional health care services, we reveal the healing presence of God.” The system had discovered it needed develop a more compelling mission after practicing with the Malcolm Baldrige National Quality Award criteria.

Patient (2002): The system attributes its 2002 Baldrige Award to a focus on its core customers, patients, and “connecting the dots” from Baldrige criteria through core processes and results. SSM Health had begun submitting applications as soon as health care organizations became eligible for the award, in 1999, and became the first in the category to win.

In July of this year, Quality Management Journal published a study comparing 34 Baldrige winners, including SSM Health, with their 153 geographically closest competitors. It found that the “award recipients provided care equal to or better than competitors while at the same time providing a better patient experience.”

The “patient, purpose, process” culture SSM Health created as it pursued the award, and nurtured thereafter, has proven to be a dependable guide for the system amidst health care’s transformation from volume- to value-based care.

To Join or Not to Join

Earlier this year, SSM Health committed to put 75 percent of its business into value-based arrangements that focus on providing higher quality at lower costs by 2020. It did so as one of 24 provider organizations participating in the Health Care Transformation Task Force, which also includes payers and employers among its members. Dr. Gauroy Dayal, health care delivery vice president for SSM Health noted that the system “began working on transforming itself five years ago….when it began assuming risk and responsibility for improving the quality of care while lowering costs.”

On the other hand, because of its unique culture, SSM Health knows what not to join. Several years ago, the system chose not to participate in the Medicare Shared Savings Program (MSSP) by creating a Medicare Accountable Care Organization (ACO). It had concluded that the assignment of beneficiaries based on claims history, not choice, was inconsistent with SSM Health’s transparent, patient centered care model.

Instead, SSM Health embarked on a path to “True North,” as it explained in a Mayo Clinic Proceedings article, “The SSM Health Care Approach to Achieving ‘True North’: Improving Health Care Quality While Reducing Costs.” True form, it created a process based on a functional definition of accountable care. The system then chartered five teams to design “an organization capable of assuming and managing global clinical and financial responsibility for the care of a defined population.”

The Volume to Value Process

Flashes of process appear continually from SSM Health as it makes the change from volume to value. For example, the system has:

Created a methodology to eliminate unjustified variation in their medication formulary using available data from purchase history, quality management systems and electronic health records.

Established a “single source of terminology truth” that effectively manages and maps data to industry standards, ensuring accuracy across the enterprise in advance of ICD-10.

Developed more efficient processes for utilizing hospitalists, decreasing readmissions.

Process at SSM Health may be very rewarding, but it is certainly not easy. Take clinical device technology. Teams now have data at their fingertips enabling business decisions based on fact, data such as mean-time-between-failure, according to Heidi Horn. However, “It took a vision and years of work and tenacity by all 100+ team members of Clinical Engineering Service,” she added.

SSM Health’s commitment to process likely played a decisive role in its merger with Dean. Although both organizations had worked together for decades, neither assumed a successful integration would necessarily follow. In fact, SSM paid “an excessive amount of attention” to culture, according to Dr. Dayal, who originally had been with Dean. An “organizational heath index” of several hundred parameters characterized the two cultures, identifying the presence or absence of overlaps.

SSM Health More Like Dean

Trustee Magazine reports that, as a result, SSM Health has become more like Dean since the merger, putting doctors on the board and appointing Dayal and another physician to lead two of its three divisions. Objective accomplished, because SSM Health acquired Dean not for its financial assets, but for its talent, knowledge and capabilities, especially around health plan and physician practice management. As Dayal explained, the 90-year-old, fiercely independent, physician-run Dean has given SSM the capabilities needed to transform into an integrated value based organization.

Operating a health plan since the 1980s and a population health model since 2009, Dean can accept performance risk for almost 70% of its business. An innovative medical value program brought clinicians, staff and data analysts together to identify opportunities to improve clinical processes and care management. The program used claims data from Dean’s insurance arm and electronic health records from area hospitals owned by SSM Health – before the merger.

Now, after the merger, the fully integrated SSM Health Care of Wisconsin now offers some of the lowest public exchange health insurance costs in the state for Janesville-Beloit consumers in Rock County south of Madison, on the Illinois border. It did so through its St. Mary’s Janesville Hospital, Dean Health System and Dean Health Plan.

In fact, when Rock County consumers select health coverage, they choose between health providers, not health insurers. Competing in the same area is a similar fully integrated health system, also with an insurance component, Mercy Health System. Citizen Action of Wisconsin, which compiled the rate comparisons, gave both Dean and Mercy four-star ratings. Only Gunderson Health Plan received five stars.

“Vertical integration has a lot to do with the lower rates,” explained Dean’s Jamie Logsdon. “When you’ve got a network, such as Dean and St Mary’s Janesville in that market, they are all working together to provide more efficient care.”

Twenty-five years in the weaving, the “basket” that is SSM Health could very well be a model for value-based health care.

The clocks are ticking for Express Scripts. Having achieved formidable “size and scale,” how will the nation’s largest pharmacy benefit manager synchronize with value-based health care? With each day, between the medical and pharmacy benefits, the time to value is diverging.

Time to Value

Under fee for service, the time to value is relatively short for both benefits. The physician bills soon after an encounter. Similarly, the patient (for the most part) uses her pharmacy benefit to get her prescription, after which Express Scripts pays the pharmacy, collects a rebate (on a brand) and bills its client.

In value-based health care, the time to value lengthens to include outcomes and, as a result, expands to include many more inputs. As Michael Porter explained, using the Institute of Medicine as his source, “Because care activities are interdependent, value for patients is often revealed only over time and is manifested in longer-term outcomes.” According to Porter, “The only way to accurately measure value, then, is to track patient outcomes and costs longitudinally.”

Value Based Health Care

By 2020, 75% of commercial payments will be through value-based arrangements, if the Health Care Transformation Task Force — a coalition of providers, payers, purchasers and patients – has its way. In 2014, 38% of payments to hospitals were value-oriented, compared to 10% for specialists and 24% primary care physicians in the outpatient setting, reported Catalyst for Payment Reform.

Meanwhile, the Centers for Medicare and Medicaid Services (CMS) wants 30% of Medicare payments in alternative payment models by the end of 2016 and 50% by the end of 2018. The percentage stood at 20%. Alternative payment models include Accountable Care Organizations (ACOs), advanced primary care medical home models, bundled payments for episodes of care, and integrated care.

For years, Express Scripts has mined its mountain of data for insights and it pioneered the application of behavioral economics to the pharmacy benefit, in an effort called “consumerology.” The company now has its own research laboratory, to which Medco’s Therapeutic Resource Centers and RationalMed program have been important additions. Using these assets, the company has driven drug costs down, promoted greater use of lower cost drugs and achieved stronger adherence to drug regimens.

Better adherence can indeed lead to improved outcomes, thus increasing Express Scripts time to value, as demonstrated by its ScreenRx® program. However, the company’s value proposition remains tethered to the pharmacy benefit transaction, instead of the ultimate clinical outcomes of value based health care. At most, its contribution to those outcomes can be inferred, but not routinely measurable — yet.

Drug Payment Models

Take the pay-for-outcomes vs. pay-for-performance conversation now underway between Express Scripts and some drug manufacturers. For its newly approved heart failure drug Entresto, Novartis proposed an initial discount with a performance bonus if it successfully lowered hospitalization rates in patients suffering from the condition. The company said Entresto does a better job of preventing heart failure deaths and hospitalizations than lower cost alternatives already on the market.

Express Scripts was not buying it. Instead, the company countered with an indication-based model, emphasizing its “elegance.” It would differentiate pricing for specific cancer drugs based on how well they work against different types of tumors.

“Unlike the outcomes-based rebate systems that have been tried by others in the past, our model won’t require plans to reconcile payments long after-the-fact based on downstream health outcomes of a specific patient,” responded Express Scripts.

However, a leading pioneer of outcomes-based rebate systems has been Cigna, which Express Scripts client Anthem is set to acquire. Cigna’s arrangements have involved Merck’s diabetes drug Januvia (sitagliptin), the EMD Serono multiple sclerosis drug Rebif (interferon beta-1a) and, recently, Gilead’s hepatitis C drug Harvoni (ledipasvir/sofosbuvir). Cigna based the Harvoni contract on elimination of the disease.

Hepatitis C

Arguably, disease elimination would reduce high cost liver transplants – a significant and valuable outcome. Presumably, that is why Cigna, Anthem, Aetna, Humana and United Healthcare – with their longer, medical benefit time to value equation — all contracted with Gilead for Harvoni. They did so exclusively, presumably for better discounts. Prime Therapeutics, owned by a number of Blue Cross plans contracted for both Harvoni and AbbVie’s Viekira Pak.

Meanwhile, Express Scripts contracted exclusively and presumably at a deep discount with AbbVie for Viekira Pak, excluding Harvoni from its 2015 formulary. Viekira Pak is a four pill a day regimen to Harvoni’s one pill, with similar effectiveness and different safety profiles. The latter comes from a review by Advera Health Analytics, which analyzes real world outcomes data.

Payer Cost

Advera Executive Vice President, Jim Davis, argued that exclusive deals emphasize the payer trend of focusing on immediate savings rather than overall outcomes, total cost of care and most importantly patient safety.

He echoed findings of a 2014 survey by the consulting firm EY that found “payers are highly focused on immediate cost containment, which means that the longer-view approach that emphasizes outcomes and keeping total costs down is irrelevant to payers.”

Express Scripts clearly is not alone in its short-term focus on controlling immediate costs. However, it alone of the major PBM’s has the shortest time to value horizon because its “center of gravity” remains the pharmacy benefit transaction.

Competitor Time to Value

Both Caremark and EnvisionRx are subsidiaries of providers CVS and RiteAid respectively. CVS recently inked a big data deal with IBM’s Watson cloud to predict patient health and RiteAid is pursuing innovative care initiatives with EnvisionRx. OptumRx, and now Catamaran, are part of UnitedHealth Group, which concentrates on linking “demographic, lab, pharmaceutical, behavioral and medical treatment data.”

Synchronizing Express Scripts

Often offered in answer to the question of how Express Scripts will synchronize with value-based health care is a merger or other arrangement with Walgreens mirroring CVS/Caremark. That may be part of a solution, but it will not be the entire or sufficient answer.

Also not the answer, but still important, Express Scripts should remain independent and continue to leverage its size and scale to lower drug prices. Ironically, its assault on Giliad’s Solvadi and Harvoni, and then its exclusive contract with AbbVie, lowered Giliad’s prices, benefiting Express Scripts’ competitors.

Anthem Contract

It is through Express Scripts’ relationship with Anthem that the PBM can extend its time to value horizon and synchronize with value based health care.

Key will be the creation of a new, outcomes-focused collaborative thrust involving Anthem’s HealthCore, which is conducting real world evidence research with drug manufacturers, Cigna and its innovative payment models and the Lab at Express Scripts. The only alternatives would be losing the Anthem business or relegation to functional role, much like Medco’s with UnitedHealth Group, the pending 2013 loss of which led to Express Scripts’ acquisition of Medco in 2012.

Notably, Anthem CEO Joe Swedish told investment analysts during a conference call on his company’s acquisition of Cigna “We do believe there’s significant value and opportunity from a better pharmacy contract.” Cigna CEO David Cordani, who will serve as COO of the combined company added, regarding Cigna’s PBM business, “We have meaningful optionality relative to the program as it stands, and you should think about that optionality as being preserved and further expanded.”

Back to the Future

In the face of this challenge, Express Scripts would do well to go back to the future, twenty years ago when it launched a visionary effort to link pharmacy and medical claims. Embodied in a “before-its-time” subsidiary called Practice Patterns Science (PPS), the initiative sought to build clinical data warehouses for health plans that organized all of a patient’s financial medical claims into meaningful, condition-specific, longitudinal episodes of care.”

Express Scripts’ CEO at the time, Barrett Toan, explained, “Having identified an episode of care for a patient, the drug therapy costs for the episode are compared to the associated medical costs. What we’re finding is, in some cases, the drug costs are helping us control the overall costs.” He pointed to a $380 reduction in epilepsy medical costs resulting from using a newly approved drug costing just $30 more. An episode is a time line, which may be long or short depending on the nature of the disease.

Cave had been president of PPS and, when Express Scripts shut down the subsidiary. The company gave him the intellectual property rights, including the disputed patent for physician efficiency measurement. He now operates Cave Consulting Group in San Mateo, California, and filed an anti-trust suit in July against UnitedHealth Group alleging UHG obtained its patent laws fraudulently and violated anti-trust laws.

It’s been a tough seven years for the American Bottom 40, the four in every ten Americans at the low end of the nation’s compensation scale. Between 2007 and 2014, they endured cuts in both wages and benefits. Meanwhile, for those higher on the scale, better benefits eased the impact of slower wage growth while the top 10% saw both wages and benefits go up.

The American Bottom 40 continues to bear the economic brunt. Wages and salaries increased just 0.2% for all civilian workers during the second quarter, the slowest pace on record. Private industry compensation was even more sluggish; benefits declined 0.2% while wages and salaries increased 0.2%, stalling total compensation growth at zero.

Cadillac Tax Driving High Deductibles Now

Targeted at the top of the compensation scale, the ACA’s Cadillac tax on high spending health plans should not affect anyone else, especially not the American Bottom 40, but it already is. Employers are rapidly adopting high deductible health plans to avoid the 40% tax on health plan costs above $10,200 for an individual and $27,500 for a family.

Although the excise tax does not apply until 2018, the timing is as immediate as tomorrow for employers making benefit plan changes. As many as 36.9% of people under 65 with private insurance coverage were enrolled in a high deductible plan last year, reports the National Center for Health Statistics.

When PwC recently surveyed employers, 85% said they have implemented or are considering greater employee cost sharing. Since 2012, the percentage of employers offering only high-deductible plans for employees has nearly doubled from 13% to 25%.

40% Lack Assets to Pay High Deductibles

The Kaiser Family Foundation warns that nearly 40% of U.S. households do not have enough liquid assets to meet individual and family deductibles of $1,200 and $2,400 respectively. Doubling the deductible levels increases to 49% those who do not have enough liquid assets.

Nevertheless, in one telling example, all 30,000 employees of the Carolinas Healthcare System will have only one health coverage option next year – a high deductible plan. It will require individuals to pay up to $5,600 and families up to $11,200 a year out of pocket in deductible, copays and coinsurance. The maximums are just below the Accountable Care Act limits of $6,600 and $13,200.

Already, employers wary of crossing the cost threshold are planning to reduce or eliminate their HSA pre-tax contributions to avoid the Cadillac tax, according to the American Bankers Association HSA Council. Although the council forecasts most HSAs will not trigger the tax, employers are playing it safe anyway by avoiding HSAs or reducing their contributions.

HSAs and HRAs had been growing, more than doubling in participation and increasing nearly fourfold in assets since 2008. Last year, $22.1 billion in assets filled 10.6 million HSA and HRA accounts. According to the Employee Benefits Resource Institute (EBRI), 27 percent of employers with 10–499 workers and 48 percent of employers with 500 or more workers offered either an HRA- or HSA-eligible plan. These plans covered about 26 million people in 2014. Accounts with an employer contribution had an average higher balance.

Bottom 40 Skipping Health Care

Faced with higher deductibles, stagnant wages and the prospect of limited savings opportunities, the American Bottom 40 are cutting back on health care. PwC found that the cost of care led 28% of those with employer coverage to skip seeing a doctor. In addition, 24% skipped medications, 20% skipped seeing a specialist, 20% skipped seeing a specialist and 16% skipped a procedure.

In theory, the money employers save by reducing excessive health spending to avoid the Cadillac Tax would go back to employees in the form of higher wages, enabling them to shop intelligently for health care. It is not happening, so what’s to be done?

Fixing the Cadillac Tax

Unions and employers want to eliminate the Cadillac tax. That will be a heavy lift. Despite its infirmities, the Cadillac tax is destined to be a major funding source for the Accountable Care Act. In any event, there is some merit to incenting employers to scale back overly rich health benefit plans, which drive up healthcare costs for everyone.

This week, the New York Times acknowledged problems with the Cadillac tax, but stopped short of calling for its repeal. Instead, it called for unspecified “smart ways” to modify the levy. Quick with a suggested solution are the financial institutions who administer HSAs. Not surprisingly, they want Congress to exempt HSAs from the Cadillac tax. The Business Roundtable is more generous. Along with HSAs, it would also exempt HRAs and FSAs.

If the American Bottom 40 had a lobby, they might suggest a different approach. Keep the Cadillac tax, but restore its focus on high end health spending. Do not exempt all HSAs, HRAs and FSAs from calculating coverage cost and tax liability.

Instead, exempt only accounts of employees who are not considered highly compensated employees (HCE) under IRS regulations for 401(k) savings plans. For 2015, that would be anyone earning less than $120,000. Alternatively, start with the low end of the scale, use a percentage of the federal poverty level as a demarcation point, and exempt the savings plans of those below it.

A modest but targeted reform, this should persuade employers to halt the retreat from health accounts, making it easier for the American Bottom 40 to pick up that prescription and put food on the table. Now, that would be huge!

Come the fall, when benefit enrollment is in full swing, Boeing employees in St. Louis and South Carolina will have a new option – one of their local health systems, in addition to current coverage alternatives from Blue Cross and Blue Shield (BCBS) plans.

Boeing announced last week that it has directly contracted with Mercy Health Alliance, an accountable care organization (ACO) in the St. Louis bi-state region, and the Roper St. Francis Health Alliance ACO in South Carolina’s coastal low country. Express Scripts is managing the pharmacy benefit and the Health Care Service Corporation of BCBS Illinois will help with administration and paper work.

Greater Savings, Improved Health, Better Experience

By working directly with the ACOs, Boeing hopes to save money for itself and employees, improving employee health and enhancing service for a more positive employee experience. Boeing South Carolina executive Beverly Wyse told WSCC-TV the company is applying the same logic to healthcare as it does in building Dreamliners, with a commitment to more quality, reliability and lower costs.

Boeing estimates employees will save $350 to $1,000 per person per year on monthly payments, deductibles, copays and prescription costs. Mercy executive Donn Sorenson told the St. Louis Business Journal Mercy could cut per family health care costs by more than half to $6,000 from the large-employer average of $15,849. He plans to do it with greater attention to preventative and maintenance care.

In negotiating Preferred Partner ACO contracts, Boeing puts a high priority on access and convenience. Primary care appointments are available for acute conditions same day and within 72 hours for any condition. The wait for a specialist appointment can be no longer than 10 days. In addition, each Preferred Partner provides extended hours, a dedicated phone line with care navigators, a member website and phone apps.

Instead, BCBS Illinois collects and provides data, in addition to performing administrative services as in St. Louis and South Carolina. Boeing’s relationship with BCBS Illinois could be a plus, if the manufacturer decides to implement a private exchange. BCBS Illinois has its own, Blue Dimensions, private exchange platform, which offers “many of the same features of online shopping.”

Boeing’s Health Care Endgame

In fact, the Seattle competition may foreshadow Boeing’s endgame, according to Tory Wolff of Recon Strategy. Boeing “is setting up its market to transition to a provider-consumer type market. We do not expect it to be too long before Boeing starts transitioning its employees to defined contribution.” The impact would be substantial. The company spends $2.5 billion on health care for 480,000 employees, dependents and retirees in 48 states.

Assuming Wolff is right, look for Virginia Mason to become a third option for Boeing’s Seattle employees. In St. Louis, SSM and its newly acquired Saint Louis University Hospital could become a second option. In time, BJC Healthcare/Washington University Physicians will conclude their shared brand – without an insurer intermediary — can attract more Boeing patients. In South Carolina and other major Boeing locations, expect the same.

Private Exchanges – Small but Growing Rapidly

While Boeing approaches a private exchange, where employees get a broad range of coverage options and a defined company contribution, other large employers have already made the plunge. These include Walgreen Co., CVS Health Corp. and IBM, at least for retiree benefits.

Admittedly, private exchange utilization is still extremely small. There are six million participants this year, up from three million in 2014. However, by 2018, 40 million people likely will choose coverage on a private exchange, according to an Accenture study.

Aon Hewitt attributes the projected surge to a number of factors, including lower cost. The average annual cost increase to employers completing a second year renewal 2.6%. Large employers with similar benefit structures saw increases of 6.5% to 8% this year.

However, the most significant driver is a 40% excise tax on “Cadillac” health benefit plans scheduled for 2018 implementation under the Accountable Care Act. Imposed on family and individual plans respectively costing $27,500 and $10,200, the tax could impact as many as 48% of employers in its first year, according to the benefits consulting firm Towers.

According to Accenture, private exchanges are a “compelling alternative” for employers who want to accomplish two goals simultaneously – control cost and administrative burdens, while still providing health coverage. They are very aware that 76 percent of consumers see health insurance as the primary or an important factor for continuing to work at their current employer. In fact, employer involvement in facilitating health benefits matters as much if not more than the employer’s financial contribution.

Sam’s Club Now, Amazon Soon?

Typical operators of private exchanges include health insurance companies and benefit consulting firms. However, small employers may rely on an unlikely source to provide their employees with coverage options, Sam’s Club, which has collaborated with Aetna to offer the Aetna Marketplace for Sam’s Club. Employers can offer a defined contribution plan or make a flat, pre-tax contribution an employee can apply to his or her plan choice. (Recently proposed IRS rules could negatively affect the latter option.)

Can Amazon be far behind? Perhaps not. Both Wal-Mart and Amazon are engaged in a fierce battle for consumer loyalty. There is no public evidence suggesting an Amazon move toward offering a private exchange. However, Amazon Web Services has been touting its deep association with Oscar Health, a technology-driven, health insurance start-up, which could be serving as a learning platform for Amazon.

What is surely not far behind is the end of group health insurance, supplanted by a rapidly growing retail market for health coverage. As blogger Joe Markland has observed, “a single 10,000 person employer will become a firm with 10,000 retail buyers.” In addition to the 40 million in private exchanges by 2018, Accenture predicts there will be 31 million participants in public exchanges, up from 15 this year, for an overall 71 million consumers.

Retail Market Driving Insurance Mergers

This burgeoning retail market is the primary driving force behind the mergers of Anthem and Cigna, and Aetna and Humana, respectively. Yes, greater size will provide negotiating advantage, but within a model that is quickly becoming obsolete. In fact, insurance industry critic Wendell Potter observed last year, “If the Boeing strategy flies, health insurers as middlemen will be history.”

Agreeing, Leavitt Partners notes that employers want benefit options that will drive a world-class, healthy, productive workforce.” However, it concludes, “the current composition of intermediaries cannot meet these demands on yesterday’s technology and workflows.”

Instead, health insurers are racing to avoid commoditization. They have to reposition to add value differently in the new retail paradigm. Instead of pounding out reimbursement deals with providers, they will need to collaborate, creating differentiated coverage alternatives for retail marketplaces.

More important than added scale, success for these insurer mergers will depend on the integration and expansion of initiatives such as:

Sandy Walsh is a breast cancer activist and, assuming she is like one in seven adult Americans each year, a sinusitis “survivor” too.

She served as the first-ever consumer advocate on the American Academy of Otolaryngology—Head and Neck Surgery (AAO-HNS) panel that recently updated the adult sinusitis clinical practice guideline.

Patient Education and Watchful Waiting

Novel, too, was the panel’s emphasis on patient education and its expansion of watchful waiting (without antibiotic therapy) as an initial management strategy. The latter now applies to all patients with uncomplicated acute bacterial rhinosinusitis (ABRS) regardless of severity. The prior guideline limited the antibiotic-free approach only to patients with “mild” illness.

Patients may not even need to see a doctor. “For the first time we’ve really made it crystal clear how to self-diagnose your own bacterial sinus infections without going to the doctor, with a high degree of accuracy,” Dr. Richard Rosenfeld told National Public Radio. He led the AAO-HNS guideline panel.

Not seeing a doctor for a sinus infection might actually have its advantages. The doctor a patient sees, not the patient’s condition, largely determines treatment, according to an Annals of Internal Medicinestudy published this month. Physician preference or “style” largely determined antibiotic use, not patient related factors like fever, age, setting, or comorbid conditions.

Telemedicine and Antibiotics

What happens when telemedicine makes physicians more accessible, convenient and less expensive to “see” for ailments like sinusitis? Antibiotic prescribing rates for acute respiratory infections were similar regardless of whether the encounter was face-to-face or via telemedicine, according to a JAMA Internal Medicinestudy published this month.

That the prescribing rates were similar represents an improvement – of sorts. A study published two years ago, also by JAMA Internal Medicine, found that telemedicine physicians were more likely to prescribe an antibiotic.

Other research shows that acute respiratory tract infections account for 75% of all outpatient antibiotic prescribing. Half those prescriptions are unnecessary because a large portion of those infections are likely viral, not bacterial.

Even more troubling, telemedicine physicians in the 2015 study were more likely to use broad-spectrum antibiotics, raising concerns because “overuse increases costs and contributes to antibiotic resistance.” The study suggests telemedicine physicians may have been prescribing more conservatively due to limited diagnostic information.

Do It Yourself for Patients

Sandy Walsh, the consumer advocate, is ready with patient education — specifically “do-it-yourself” diagnostic tools for sinusitis sufferers. She and her co-authors have written a plain language, adult sinusitis summary, including patient information sheets, based on the new AAO-HNS clinical practice guideline. The summary, already available online, will appear in the August issue of Otolaryngoly – Head Neck Surgery.

According to Dr. Rosenfeld, the key to this “do it yourself” approach is learning how to tell whether the infection is viral or bacterial. As he told NPR, if you have been sick less than 10 days and you are not getting worse, it is most likely viral and an antibiotic would have no effect.

If you do not improve or get worse in 10 days, it is probably bacterial. Still, Dr. Rosenfeld advises that, even then, an antibiotic would play little role in what is largely a battle between your body and the infection. “There’s a good chance you’re going to get better on your own,” says Dr. Rosenfeld.

Integrate Telemedicine and Education

Telemedicine providers would do well to follow Dr. Rosenfeld’s example. Fully integrate patient education as first line therapy for sinusitis, help patients learn how to diagnose and care for themselves, and reserve antibiotics for true need. Make telemedicine good for antibiotic stewardship.

“Where do you want to get your MRI,” Dr. Barry Yeaman asked his patient. “I don’t care, wherever you want me to do it.” The Norman, Oklahoma, family physician tried again.

Dr. Yeaman told his patient about price differences in Norman and nearby Oklahoma City, where the cost of an MRI can vary by as much as a thousand dollars or more. The patient still was not ready to make a decision.

“Patients still defer to the provider. I see it nonstop,” Dr. Yeaman explained to a panel of health care executives convened by HealthLeaders media.

Will They Come?

Build it and they will come? Not yet.

Here we have Obamacare’s next big challenge – not in the courts, but in the rapidly expanding consumer marketplace carved out by high deductible plans, whether on a public exchange and from an employer.

Typically combining both medical and prescription drug expenses, the deductibles far exceed the IRS high deductible definition of $1,300 for an individual and $2,600 for a family.

Next year, all 30,000 employees of the Carolinas Healthcare System will have only one health coverage option – a high deductible plan. It will require individuals to pay up to $5,600 and families up to $11,200 a year out of pocket in deductible, copays and coinsurance.

With their own money at stake, consumers theoretically will shop for better prices and higher quality, thus forcing health care to deliver greater value. Fact is, such consumers are about as real as ball players emerging from an Iowa cornfield.

The better answer is “build it so they come.”

Underinsured and Unable to Choose

A few consumers do come to shop, believing they know something about health care, only to be thwarted by opaque and unavailable pricing, even when required by law, or surprise bills from providers they have never met.

However, like Dr. Yeaman’s patient, most consumers are unable to choose. Facing tight budgets, many simply buy less of everything instead of choosing needed medications over optional skin cream, according to the Rand Health Insurance Experiment.

In another example, employees at a company with a new high deductible plan cut back on prescription drugs. They did so although the high deductible did not apply to the pharmacy benefit. The National Bureau of Economic Research suggested employees were unaware of benefit design details and possibly skipping physician visits.

For a significant number of consumers, whether they have the skills needed by today’s health care shopper is beside the point. They do not come to market simply because they do not have the money to participate.

According to the Kaiser Family Foundation, 37% of U.S. households do not have enough liquid assets to meet individual and family deductibles of $1,200 and $2,400 respectively. Doubling the deductible levels increases to 49% those who do not have enough liquid assets.

As many as 31 million adults with employer provided coverage were underinsured last year. High deductibles alone put 7 million in that category, according to a Commonwealth Fund study. Half had problems with medical bills or medical debt. Meanwhile, the Consumer Finance Protection Bureau reports that half of all overdue debt on credit reports stems from unpaid medical bills.

Last year, among adults fully insured with a public exchange plan, one in four reported they went without some needed medical care because they could not afford it, according to a recent Families USA study.

The High Deductible Squeeze

Health care organizations across the nation are feeling the impact of high deductible health plans. According to Crowe Horwath, insured patients’ bad debt and charity rates were up 22 percent and 130 percent last year in Medicaid expansion states, and 35 percent and 130 percent in non-expansion states.

The Advisory Board reports that Healthcare providers are collecting $0.18 to $0.34 on the dollar from patients with high-deductible plans. Once a bill exceeds 5% of household income, payments are nearly zero.

Last year, when Federal Express instituted a high deductible plan with health savings accounts, Methodist Le Bonheur Healthcare in Memphis was running $17 million behind budget by the end of the first quarter. Some hospitals like St. Luke’s in Kansas City are insisting on 25% prepayment.

Drug companies are feeling the pinch, too. According to the Families USA study, 14.2% of those newly insured on the public exchanges went without needed medications because of high deductibles and copays. Up to 16% of cancer patients quit their treatment plans because they cannot afford out of pocket costs for life-saving oral cancer medications, according to a recent University of North Carolina study.

Even clinical pathology labs are seeing revenues decline as more patients in high deductible plans fail to pay their bills. Labs like Arizona’s Sonora Quest Laboratories have begun asking patients to pay in advance, as they aim to collect millions they had previously written off.

Health Care Responds

Health insurers and employers are responding with new, value based benefit designs that encourage consumers to make wise health and financial choices. These plans typically lower consumer out of pocket costs for services that support better health, such as prescriptions for chronic conditions. University of Michigan researchers studying such a plan used by Connecticut state employees suggest there is better control of chronic conditions.

Writing in the Boston Globe, one of the researchers explains that value based benefit plans “rely on consumers to understand their benefit design and evaluate different costs for various services.” Betsy Cliff admits, “That kind of consumer education isn’t routine.”

However, some organizations are making impressive attempts. Kudos go to the American Gastroenterological Association (AGA), for example. As a template for all-in colonoscopy pricing, it is using the pricing sheet – known as the Monroney sticker– pasted on new and used car windows. Meanwhile, MetroHealth System has put a 38-foot RV on the road in Cleveland staffed by three financial counselors to answer consumer questions.

Three SEO Keys

Across health care, leaders and communicators must challenge themselves to build a less complicated healthcare marketplace so consumers will come and shop. Here are three SEO keys for doing so:

Simplify the Market: Bundle, package or just better organize quality measures, outcome data, pricing and billing. Like the AGA, look to other industries for simplification strategies. Be transparent, accessible and responsive.

Educate the Consumer: Before they become patients, teach consumers how to become good healthcare shoppers. This is a job for every part of health care, not only payers. Like Cleveland’s MetroHeath, go into the community.

Offer Options: For those consumers who do not have enough money, even if insured, provide them with low or no-cost options for health care and prescription medicines. Identify and meet other needs to enable healthy choices.

Whether a baseball field, website or the healthcare marketplace, “Build it so they come.”